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SportPesa’s UK Tax Move Raises Questions

September 11, 2020

- Grant Whittington

Source: pxfuel.com
If death and taxes are indeed life’s only two real certainties, then African betting behemoth SportPesa has at least one of the two perfectly nailed.

The former Formula 1 and Everton FC sponsor has reportedly been siphoning profits generated by its super-successful Kenyan business into a UK-based software company. And it’s a strategy that has worked wonders at significantly cutting down to size its tax obligations.

According to the outcome of an investigation conducted by Finance Uncovered and Daily Nation (Kenya), the SportPesa-owned SPS Sportsoft software company has been providing software services seemingly crafted out of pure gold to SportPesa’s Kenya-based Pevans East Africa operation.

Pure gold software services marked up by more than a staggering 400% since 2017.

World’s Most Expensive IT

SportPesa’s annual statements furthermore revealed that SPS Sportsoft billed Kenya’s Pevans a gruesome sum of £42 million for IT and other services – over the course of two years alone, that is. However, its UK costs were at the same time so low that its pre-tax profits reported for the same period came to a swooping £33 million. To be clear, that would be profit margin of 77%.

What the company had basically managed to swing, was to move SportPesa’s profits out of 30%-taxing Kenya, and into 19%-taxing Britain. Not to mention even SPS having successfully managed to take full advantage of a 43-year-old double taxation treaty existing between the United Kingdom and the African country. This crude but cunning exploitation resulted in a massively reduced UK tax obligation.

SportPesa Says It Did No Wrong

As for SportPesa’s take on the legality of the situation, the company claims to have closely complied with all of the necessary legal and commercial accounting principles applicable to Kenya and the United Kingdom. The approach it has been following pertaining to the cross-over between its UK and Kenyan companies, said the sports betting giant, was pretty much standard practice for the online sports betting industry.

But none of this means that tax experts haven’t been raising several questions about the “pricing” approach followed by SportPesa. In fact, according to a Kenya Revenue Authority official, SPS’s financial statements in particular, appeared to be showing definite signs of “overcharging” having been pretty much at the order of the day.

To which SportPesa, by a way of a company spokesperson, has responded by alleging that what the Kenyan revenue service official has been quoted as having said, is actually factually incorrect. The IT- and other related software services provided by SPS Sportsoft to Pevans East Africa is according to the brand, 100 per cent in line with current industry rates and norms. And furthermore, that their activities have through the entire bank been in full compliance with all of the relevant tax and legal framework requirements.

About Those Taxes

SportPesa’s wonky and certainly questionable relationship with tax obligations is of course nothing new. The operator in 2019 got stripped of its Kenya betting licence – this right before it announced its intentions to withdraw from Kenya as a result of the country’s so-called hostile tax environment.

Originally created specifically for the purpose of facilitating UK operations, corporate structure SPS Sportsoft currently employs as many as 70 permanent employees. What’s more, SPS is no independent endeavour. It is in fact owned by yet another UK company under the control of SportPesa, namely SportPesa Global Holdings Ltd.

The latter, it seems, is basically a profit-collecting shoot for income generated in the United Kingdom. And not surprisingly, it shares a common shareholder portfolio with none other than Kenya’s Pevans East Africa.

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